Payment Of Gratuity Act Amended To Remove Ceiling Of Rs. 10 L [Read The Bill]

With the Rajya Sabha passing the Payment of Gratuity(Amendment) Bill, the amendments to Payment of Gratuity Act have materialized into legislative form. The Amendment Bill was passed by the Lok Sabha last week on March 15.

The amendment has taken away the ceiling limit of Rs.10 lakh for the maximum amount of gratuity payable. This upper cap prescribed by Section 4(3) has been removed. The amendment says that the upper cap will be “such amount as may be notified by the Central Government from time to time”.

This has been done in view of the implementation of the 7th Central Pay Commission, whereby the ceiling of gratuity for Central Government employees has been enhanced from Rs. 10 lakhs to Rs. 20 lakhs. The Statement of Objects and Reasons of the Bill state that considering the inflation and wage increase even in case of employees engaged in private and public sector, the entitlement of gratuity is also required to be revised for employees who are covered under the Act. Instead of mentioning the ceiling amount in Act, the amendment empowers the Central Government to notify the ceiling proposed so that the limit can be revised from time to time keeping in view the increase in wage and inflation, and future Pay Commissions.

It may be noted that Section 4(5) of the Act says that if the terms of employment contract provide for a higher amount of gratuity over and above the ceiling limit stated in the Act, then the employee will be entitled to such higher amount. Recently, a full bench of the High Court of Kerala authoritatively pronounced that the ceiling limit in the Act will not limit the right of employees to receive full maturity amount of group-gratuity insurance schemes availed by the Societies from LIC. The court had denied the contention of the Societies based on then existing upper-limit of Rs.10 lakhs.

Another significant feature is that the period of maternity leave prescribed as ‘twelve months’ in Section 2A has been amended as ‘twenty-six weeks’ to keep the Act in tune with the recently amended Maternity Benefit Act.